QBE sells Latin American business to Zurich, posts annual loss of $US1.25bn

QBE has posted an expected, $US1.25bn annual loss, as it sells its troublesome Latin American operations to Zurich Insurance.

QBE boss Pat Regan. Pic: Hollie Adams

Global insurer QBE will slice off its troublesome operations across Latin America, announcing a deal to sell businesses in Argentina, Brazil, Colombia, Ecuador and Mexico to Swiss giant Zurich Insurance.

QBE (QBE) today unveiled a full-year loss of $US1.25 billion, which was largely foreshadowed after a profit warning in January. This was a swing into the red following the prior year’s $US844m annual profit, and came with a hefty cut in the insurer’s dividend payout.

At the time of the January downgrade, QBE said it was putting the Latin American division up for sale in a bid to simplify the sprawling insurance group.

The sale price of the Latin American business is expected to top $US400 million, with QBE to reap around $US100m in profit from the deal, which will need to be cleared by regulators in each country.

“The decision to exit Latin America is consistent with our focus on simplifying the group, reducing risk and improving the consistency of our results,” QBE chief executive Pat Regan said. “Following a detailed review of our Latin American Operations, we determined that QBE was no longer the best strategic owner of these businesses.”

QBE, which currently does business in around 40 countries across Asia, Europe and the Americas, will remain in Puerto Rico so it can continue to service claims from Hurricane Maria. It will then be classified as part of QBE’s North American operations.

QBE has been a source of disappointment for investors in recent years after decades of expansion and acquisitions that have resulted in a complex, sprawling and unpredictable global insurer.

Cyclone Debbie, which hit Queensland in March, the recent hurricanes Harvey, Irma and Maria, which devastated the Caribbean, Texas and Florida, an earthquake in central Mexico and other disasters have punished the insurance industry. Global reinsurer Munich Re reckons insured global losses from natural and man-made catastrophes last year exceed $170 billion, well above the average of the past decade.

Mr Regan, formerly QBE’s chief financial officer and head of Australia, took over from previous boss John Neal in January following a boardroom scandal and a string of profit downgrades.

Only the Australian and European businesses reported an underwriting profit for the 2017 calendar year. The North American, Asian and Latin American divisions were all loss-making over the last year.

QBE’s insurance business lost 4c for every dollar of policy revenue it made, compared with a profit of 7c per dollar the year before.

If it were not for an “extreme catastrophe” experience over the year, QBE said it would have made nearly 2c for every dollar of premium sold.

QBE will pay a final 4c dividend, partially franked, well below the previous year’s final dividend of 33c per share, reflecting “the very significant impact of catastrophe claims that contributed to a $632 million after tax loss on a cash basis during the second half of the year”.

QBE also somewhat clarified its position to a previously-launched share buyback plan.

“The board remains committed to the three-year share buyback of up to $A1 billion; however, intends to take a considered approach in the near term,” the group said.